According to GM, happy days are here again. Profits are up, costs are down and the company’s turnaround plan is on track. The automotive media have swallowed The General’s spiel hook, line and sinker. The financial markets are ready, willing and able to view The General’s second quarter losses through the automaker’s prism of perpetual positivism, sending GM’s stock price to its highest level since last October. Well folks, it ain’t necessarily so…
First, let’s not forget that a $3.2b dollar loss is a $3.2b dollar loss. Sure, if GM hadn’t bought out 34,410 UAW workers’ contracts, it might’ve made a $1.2b profit. And if my grandmother had wheels, she’d be one of those trolley cars that GM removed from city streets in the 40’s. More to the point, GM’s US market share is still in decline, down 3.1% from last year, to 24%. Until and unless that changes, the “one time charges” related to production downsizing won’t be enough. Or, if you prefer, they signal the beginning of a trend, not the end.
So if things are so bad for GM, where did all the profit come from? As TTAC’s Deep Throat has pointed out, GM’s public promise to wean itself off fleet sales, to boost residuals and transaction prices, isn’t being born out at the sharp end. In the second financial quarter, GM sold at least 120k high content units to rental fleets. The General also sold their new LWB GMT-900 SUV’s to dealers, which carry fat margins. [NB: In this case, “sold” means shipped to dealers.]
And then there’s accounting. For the second financial quarter’s statement, GM made some pension calculation adjustments, reduced their warranty charge (lowering their warranty reserve fund on the supposition that their vehicles are getting better), booked some workers costs (which previously appeared as expenses) against previously charged restructuring costs and benefitted from a strengthening Canadian dollar.
In fact, if not for the GMAC dividend of $900m, GM’s cash position wouldn’t have changed. So while it looks like The General’s making earnings, cash generation from operations isn’t getting better. GM still has an inventory problem at its dealers, which isn’t going to go away without massive incentives. And thanks to hundreds of thousands of “zero percent financing for anyone with a pulse” deals, the loan rate buy down is probably on the order of several thousand dollars per vehicle.
Pistonheads have a better grasp of the situation than the bean counters. They know GM has failed to produce a runaway best seller (or sellers) to replace their [once] hugely profitable SUV’s. They know that it’s business as usual down at their local Buick, Chevy, Cadillac, Saab, Saturn, GMC and Pontiac dealer— at least from a product point of view. From a financial perspective, there’s been a huge change. Again, GM’s dealers have been writing bad paper; lots and lots of bad paper.
It’s Mitsubishi redux. The Japanese manufacturer’s US fortunes foundered on the rocks of easy credit, when hundreds of thousands of borrowers defaulted on their loans. There is every reason to believe GM’s bad paper will also spontaneously combust, leaving dealer lots stuffed with vehicles no one wants and a big old hole in their accounts receivable. The practice may appear better than offering large discounts on slow selling GM products. But if you think about the implications of writing bad loans in the medium to long term, it isn’t.
There are other dark clouds on the horizon. GM watchers seem to have forgotten about bankrupt auto parts supplier Delphi. While most industry wonks discount the possibility of a strike– now that GM’s paid thousands of Delphi’s UAW workers not to work– there’s still an August drop deadline for union – management agreement, and no agreement. At the same time, we hear ominous rumblings that other GM suppliers may not make it out of Chapter 11. And while analysts have hip-hip-hoorayed GM’s job cuts and plants closures, they would do well to remember that reducing production in the third financial quarter will create a significant drop in revenue.
Meanwhile, the list of assets GM put on the line for its new secured credit facility should give GM boosters pause for thought: “certain” North American accounts receivables, unspecified vehicle inventories, the entire Saturn brand, its Canadian operating unit (plants and property) and 65% of GM de Mexico. In short, The General has wandered into the pawn shop with a large list of assets to secure credit it once enjoyed on the back of its income. Add GM’s dicey cash position and the situation doesn’t fill me with $30 a share confidence in the company’s future. But hey, that’s me.
The real bottom line is that GM is a car maker. There’s only one way out of their current death spiral: produce enough vehicles that people want to buy at a price that makes the company enough profit to stay in business. It still ain’t happening.
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There’s only way out of their current death spiral: produce enough vehicles that people want to buy at a price that makes the company enough profit to stay in business. It still ain’t happening.
That is exactly right. I am doing my research to buy a new car late Q4 ‘06 or early Q1 ‘07, and GM does not have any models I want to buy at their price. I probably won’t even visit a dealer.
What does my list look like?
‘07 Altima (V6)
‘07 Camry SE V6
‘07 Camry Hybrid
Mazda 6 (wish it had another 40 HP)
‘07 Infiniti G35
Lexus IS350
Acura TL
Used MB C-class
Used BMW 3 series
What GM product should go on that list? Malibu? G6? Impala SS? I can’t think of one that belongs on there.
It’s painful to watch GM decline, but they have not made a product that has sparked my interest in decades. Their product styles are dull at best, dash layouts and function are quirky, and the seating positons are irritating unless you are built like Bigfoot. I can see a lot of different automobiles in my future including some Ford and Chrysler products, but not a single GM is on my radar.
GM products make me think that they do their market research on their own executives and their wives in the California wine country, at company expense of course. Very few consumers are paying attention to board room discussions and talk-it-up promotions, they are sizing up your products against everything else that is available. Maybe if GM encouraged their employees to buy and live with competitive products on a day-to-day basis instead of finding every way possible to prohibit them from easily doing so a critical mass within GM would finallly begin to understand how they really stack up against the competition.
Good luck!
JP: If you are considering Infinit, Acura and Lexus, why not a Cadillac CTS?
(I know, I know — the interior, right?)
Indeed, Robert, I have to agree with everything you wrote about here. In fact, the parallel to Mitsubishi is very, very telling. There is one major difference here. Mitsubishi had its prior “parents” (Mitsubishi Heavy Industries and Mitsubishi Bank) to bail it out, which seems to be working.
Where are GMs white knights? They do not exist.
May I add one more interesting parallel? I was quite shocked to see your comments about GM “mortgaging” so much. To quote: ???certain??? North American accounts receivables, unspecified vehicle inventories, the entire Saturn brand, its Canadian operating unit (plants and property) and 65% of GM de Mexico.
Well, the parallel I would make is that of MG-Rover literally selling off the land under their own last remaining UK factory. Not forgetting, that the Rover line held some of the UKs best selling cars a mere 8 to 10 years ago. As of last March, it was completely “kaput” – ran out of money – did the equivalent of a US Chapter 7 bankruptcy. All gone. No more. Doors closed. No warrantee work on all those nice shiny cars still sitting at the dealers, which were going bankrupt left, right and center, as well. (Some new old stock Rovers and MGs are still on UK lots, I understand).
The MG “brand” may have survived under Nanking of China but that is not the MG-Rover company of old.
This is GMs sad future. Chapter 7, not Chapter 11.
But if any company “deserved” it, it is GM (and also, Ford). Huge amounts of arrogance and greed over the years is coming around to bite them – big time.
JP: What about an Audi A4?
Jon.
One comment on financing:
On paper, these discount loans probably cost less than in reality: they are probably undercharging for the credit risk. THIS is much of what sunk mitsubishi, not that they did loans to everyone with a pulse, but didn’t properly account for the cost of it.
On paper, these discount loans probably cost MORE than discounting: Net Present Value of a 0%, 6 year, 40k loan on an SUV is major owchage, $6k and change, and thats assuming a 0% default rate! And so these are booked as expenses.
But one of the key factors being overlooked is that discount financing is something GM has to pay later, not immediately. So it conserves cash.
(RF: If you want, I can run some more through spreadsheet numbers for this)
JP: Mazdaspeed 6. You lose the passthrough, but gain AWD, sports suspension, 40hp over the V6, and the fastest 0-60 of any Mazda on the market.
Otherwise, look at the Mazda6 hatchback (5-door). I have one and am very happy with it, although it is a bit of a gas-sucker. :(
(If I was buying again, I’d probably get the Fit instead. Cheap, frugal, penalty-box).
Jonny:
You’re right, I should put it on the list. It is just out of the price range I want to pay; although the IS 350 is right there about the same price (the IS 250 is closer to my range). I really don’t want to go above $35K, and would prefer under $30K. Thus the Altima at the top of the list, and the used C-class and 3-series. The Infiniti, Acura, Lexus, et al., I’m willing to go look at, but there is probalby a less than 20% chance I’ll actually drop the money on them.
But you do have a good point and, dagnabit, I might actually have to set foot in a GM dealership.
As to the CTS interior, what is the deal with an 8-way button on the steering wheel? And yes, the rest is not real good.
the only GM car i would consider right now (im 21) would be the Cobalt SS s/c. it???s a really fun car to drive and is quick and i think it actaully looks pretty good (minus that spoiler). This was on the top of my list while i was car shopping. a friend called me and said he was at an accident seen (he is an EMT) with a Cobalt SS, the dash moved back nearly 2ft. both of the drivers legs where broken and he had some other serious injures…so after that i didn???t go back to the GM dealers. And i wont consider them until they make a turn around in every aspects of there cars, and the sustain it for a few years.
The faithful don’t get distracted by facts.
The GM loyalists are still out there now, desperately dropping on all fours to lap up whatever the spinmeisters pour onto the dirty floor for them. They just can’t stand to see their once mighty producer of schlock for the lowest-common-denominator finally succumbing to those pesky Jap-o-nese. They will deny the ship is sinking, even as the hull settles into the muck on the bottom of the ocean floor.
How dare someone make superior product and be rewarded with market share and customer loyalty? That’s so, I dunno, American.
I guess the real visceral reaction from the GM lap dogs comes from the fact that they don’t get it, they know it, and nobody likes to be the last one to get the joke. The rest of us have laughed at the design/build of F-Bods, J-cars, and every grandma car Buick/Olds/Caddy put out for the last 30 years. These folks do not have the discimination to tell the qualitative differences between a Honda Civic and a Cavalier. And it hurts.
I guess if my taste buds couldn’t tell 20 year old Scotch from dog urine, I’d be a bit on the defensive as well.
The reality, of course, is that the problem is/was/always will be GM itself.
Executives never had to wash, maintain, or service their own cars. They’d park in the garage and come back to a perfect car. If the techs couldn’t fix it, a brand new loaner was there. Any wonder these clowns were disconnected from reality?
The rest of the corporate culture that has been widely known as a disaster since, oh, the early 70’s. It’s only gotten worse, by the way, as everyone scrambles to try and save their own arse.
Don’t worry, something called GM still be here after the bankruptcy. As a ~10% market share seller of trucks, a few mediocre cars, the ‘Vette, and distributor of replacement parts for the legacy stuff. It’s just that the creditors might sell it to the Chinese…
Over 25 yrs I’ve driven a lot of GM product as company vehicles and rentals. I’ve even owned a few. They have all been mediocre at best. A 2000 GMC Sierra Classic made me a GM hater for life. A bad truck that neither the manufacturer nor dealer wanted to take responsibility for. To relate the history of problems I had with that truck would put me in a foul mood for the rest of the day and require a post much to long. I want GM to die and the sooner the better. I know I am not alone.
I sure wish you guys would stop discussing GM’s product or think about it’s purchase without considering how you will get warranty coverage, parts or money (once you try to unload it) for your BARGAIN after GM goes under.
“These folks do not have the discimination to tell the qualitative differences between a Honda Civic and a Cavalier.”
Well said. And that is why all accounting magic in the world can not save General Motors or Ford.
Parts will still happen. Its too big of a market not to.
Warantee coverage? Well, the warantee is a joke anyway (3 years/36k miles), even a GM product is going to last better than that.
And resale value? Its a GM, it tanks like a stone ANYWAY, its not going to tank that much faster with GM in Chapter 11.
Robert, I love these articles. Keep them up.
I wonder why in all the GM hype going around these days I don’t seem to hear much about changing the dealer structure. It would seem that as market share declines so should the number of the dealers.
I don’t know if this is just me but it seems that the advertising I hear, especially on the local stations here in Kansas City by the GM dealers, is targeted to get you into one GM dealer over another. Terms like “Nobody sells Chevy’s for less” or “Nobody in KC has more Silverado’s then us” doesn’t seem to target the competition. My feeling is that they are advertising to the buyer who has already made up his mind to buy a GM product and then want that person to come to their dealership.
I think that if GM had fewer but higher quality dealers they would sell a lot more units then they do now. When recently shopping for a car I noticed that many of the Toyota and Nissan dealerships were owned by the same people that owned GM dealerships. In most cases they shared the same lot as well as the same name. Wonder where the loyality is?
Karesh mentioned on GMI.com about how hardly any domestic car brands get cross-shopped on his own board. Registration numbers also suggest high brand loyalty, percentagewise.
The problem with that is the dwindling number of buyers for the big 2.5 aren’t going to keep them afloat for long. It won’t take more than a loose nuke a successful Saudi refinery attack to scare up oil prices and put a dent in GM/Ford/DCJ’s future plans.
yournamehere, I am not in anyway defending GM products, but your 2nd hand account of the accident scene is kind of irrelevant without more details about the accident. How fast was the Cobalt going? What did it hit?
Dr. JP, at $30K, you can also look at an Audi A3 2.0T FSI or an Acura TSX. Up to $35K you can get an Audi A4 2.0T FSI or a Mercedes 230 Sport Sedan (Sport used loosely). And that’s tax included!
But none are as roomy as the Altima.
If you consider an A3, then I would go for the 3.2 with auto (6-speed DSG), which comes with Quattro and the S-Line kit.
Jon.
The Audi 3.2 is the wrong call. The consensus I’ve seen from Audi sites is a chip and rear anti-sway bar. A good chip has programs that vary with octane AND keep the original program for servicing. Total cost for this is probably in the $1k range and quattro is all you have lost out on. Actually the “right” call is the Golf GTI 4 -door when it becomes available. You can do the same thing to it as the A3 and save yourself around $3k. Or you can wait for the new Mazdaspeed 3 which looks to be a beast. It has more hp than the 3.2.
As for GM, the General is not willing to make the really tough decisions. Look at all the brands RF listed: Buick, Chevy, Cadillac, Saab, Pontiac and GMC. Who thinks GM needs more than Cadillac, GMC and Saab?? But even, then you have to make cars people want to buy and the days of GM snookering the public into buying their cars with slick PR is over.
Yeah, I’m getting ready to buy a new car. And the prospect of going for ANY GM vehicle is laughable. At least volkswagen makes desirable cars (if horrendously unreliable).
and I’m with you nweaver. I could get a used accord with leather seats, but I’ll be god damned if there isn’t something about the FIT that just screams at me.
Also those paddle shifters look fun.
Hooray….we’re dead!
The automotive press in Detroit have bought the GM turnaround hook, line and sinker. Meanwhile, in realityville, the working stiffs are shitting the proverbial brick.
Reporting that “GM is turning itself around” (Detroit News) or “GM turnaround is working” (Detroit Free Press) is overly optomistic at best and unethical at worst.
GM accountants seem to be embroiled in game of corporate 3-card monty, or hide the weenie! This is nothing more that an eloborate juggling act to stall for time to figure a way out of the mess.
Until, as you have said numerous time, GM improves quality, curb appeal and fuel consumption, I remain skeptical.
Glenn-
What are you smoking? It must be really good. You’re comparing General Motors to MG-Rover? While you’re at it, why don’t you just say that The US economy and Great Britain’s are comparable. C’mon if you’re going to make a statement, at least compare apples to apples. Face it, GM will never go under, it’s worth more than the GNP of any third world nation and more than some developed nations- think small European nations i.e. Luxembourg, Belgium, etc.
Hey Glenn and Robert- sorry to disappoint you guys but as long as there’s a United States, there will be a GM.
Real fast — which Volkswagens are desireable?
montess. Maybe its just me, but tying the Fate of the US to GM seems like really bad Mojo. Not to get overly political here, but management on both ends is fairly wanting.
I just test drove the rabbit, and liked it alot.
More power than the matrix, which was my choice up until I actually drove the damn thing.
and I meant desirable in the high priced vegas call girl sense. Its all romance until she breaks your heart.
Wall Street says GM Leadership restructuring is “Like Putting Lipstick on a PIG” – Update 7/26/06 – Wall Street Loves You Today GM, but will they tomorrow?
http://qualityg.blogspot.com/2006/07/wall-street-says-gm-leadership.html
Listen to Jim Cramer. He's all over GM. Which is unfortuneate, cause until that point, I thought he might actually know what he was talking about.
Will Bob Farago still be doing these "GM Deathwatch" articles in 2016? What number will he be at by then? Bob, you just can't stop yourself from screaming "The Sky is Falling" every time any news comes out of GM, good or bad. I'll accept the judgment of Wall Street on a highly liquid stock like GM over an internet automotive journalist on this one.
Bob, this "GM Deathwatch" series is beginning to remind me of the "Apple Deathwatch" internet sites the Microsoft and Dell lovers used to run. We all know how sanguine their predictions turned out to be.
To all of you GM haters/bashers who have posted replies, have any of you actually driven a GM vehicle lately? I have, and almost all of their direct competitors courtesy of Hertz, National, etc. I can't imagine buying a 2006 Camry or Sonata over an Impala. The Impala is so much larger than those two, drives just fine, and is thousands less equivalently equipped. I find it especially amusing when someone says they are considering the triple vanilla Camry, or the "our interiors make GM's look good" Altima over any and all GM sedans.
Are automobiles the only purchase people make where a 2k to 5K price difference isn't significant? It is to me, which is one reason I'll be at least semi-retired in ten years at around 50 years old. And before someone replies with the hackneyed "GM's resale values suck", remember, only true spendthrifts buy something new, own it when the depreciation curve is steepest, and then sell it just as the depreciation curve starts to flatten out. Also, based on actual new car transaction prices (not window stickers like Kelly and Edmunds use); GM vehicles are competitive with most others in depreciation. I would also much rather have the savings up front, and invest it at 5% or better interest, rather than pay more and have my money invested in a rapidly depreciating vehicle.
Great discussion. And it kind of makes my point and Mr. Farago's final paragraph. In the most competitive segment in the industry, (mid 20K to mid 30K sedans) GM really has no vehicle that can match its competitors. At the high end of that range is the Cadillac CTS. But what goes upagainst the A3, Altima, TSX, TL, etc.? Or even the Camry or Accord (but we already know GM can't compete here)? I beleive that this is the single biggest segment in the consumer autospace (although some data could convince me otherwise) and the largest US automaker can't compete. Sad, really.
Robert is right about the SUVs sitting on dealer lots.GM is blowing smoke about these things selling so great, they record profits when we get them not when the public buys one.You can get one for invoice all day long as the demand does not seem to be there supply is backing up and payments are HUGE.The $2000 rebate on a red hot product says something about demand.
airglow, you can talk all you want but go down and look at any GM dealer lot. I did so, just for morbid laughs. My local dealer has several hundred SUVs and pickups – and maybe 6 Malibus and 10 Impalas, fewer Cobalts. People are obviously moving to cars, even GM crap, and trying to trade off their SUVs. The once-protifable SUV market has T A N K E D. So, if GM was losing $2800 per car sold world-wide even before the "grand-giveaway" related to "Employee Pricing" last September, what in hell are they losing now with tons of these "high-profit" trucks sitting on the lots? Yeah, GM sold them to dealers, but they aren't moving on – so how many dealers are going to be ordering hundreds more, now? Seems to me that the "problem" of too many GM dealers will soon be sorted out because tons of them are going to go bust about the time gas prices hit $4 a gallon. We drove past our local station and premium was at $3.84 the other day, aren't we lucky here in northwestern Michigan? We get the highest gas prices and lowest wages in Michigan, the only state in a recession.
Damn, I hate to be last to the party… While I would not characterize GM USA's disposition as rosy, the General Motors Death Watch title is becoming tired. After 85 installations, maybe it should be changed to another title. How about the General Motors Lame Watch? It's a little closer to what you're really complaining about. I believe I understand the Mr Farago's point of view about GM and he's certainly entitled to his opinion. There has definitely been enough animosity between GM and it's executives, line workers, supplier and even customers, to go around. And Mr. Farago certainly knows how to play to his crowd. But I've been reading this thing for the last year (or so?) and it looks like they're not much closer to the apocalypse that has been predicted (hell, even prayed for) since the 80's. Some of this stuff is correctly labeled as rumor or more like 'ominous rumblings', but really, what is being said here that isn't known, even by casual observers? The bankruptcy judge for Delphi keeps pushing back the deadline every time we get close to one. Who are these other suppliers that may or may not make it? Information please. Financial maneuvering aside (which it seems every company is participating in these days) they're still doing business. Maybe not the best business, I agree, but still standing. You have to give the board of bystanders credit, they will not be cowed, even by Captain Kirk. They know how to stay the course. I'd be wiling to bet that most of the people who complain about GM cars (not just on this blog) don't and have never owned one. I could start a one man rant about some of the bad business practices I have dealt with from dealers of all stripes. As for me, I just signed up for a Chevy Malibu Maxx. Why? Where else can you find a 5-door car in that size class? And with a huge discount? Maybe the Mazda 6, but I think that's it (without Googling). No discounts on those, either. I have had a mid-size 5 door car before, and I missed having a car like that, but again, that's just me. i was very happy to find another one.
Locally, the GM dealers are awash with SUVs, and have few cars available. The "faithful" GMers are obviouisly "trading down". Thus, if GM were losing $2800 per vehicle sold new before last September's "fire sale" (Employee Pricing), what on earth will their loss per vehicle be now? Because I can tell you that the "overage of GM dealers" is going to be fixed real soon, like about the time gas gets to $4 a gallon and the dealers go belly-up. So, who will be ordering hundreds of yet more GM "high profit" SUVs and pickups then? Answer: nobody. Gas prices locally went to as high as $3.84 a gallon for premium (then retreated) a few days ago. As for my comparing GM to MG, and the UK economy to the US economy – well, the UK population is about 1/3 of the US even though they live on a small island – and MG Rover sold vehcles all over the world not just in the UK – so it is not such a poor comparison as you make out, friend. The point is – GM is getting as desparate to clutch onto any money by putting everything left into hock – since they've gone ahead and already sold the family silver, gold, pearls…. (like Subaru, Suzuki, Isuzu, Detroit Diesel, Electromotive locomotive operations, and now most of GMAC, the only thing which actually makes them any money). I said it in September 2005. The GM Titanic has hit the iceburg. The ship is listing, taking on water. Keep on thinking it's unsinkable and we'll see what happens next.
Just think how many episode there'd be by now if I'd started back in the 70's, when GM lost the plot. Or, if you prefer, the chickens may be flying slow, but they're coming home to roost.
the fact that GM is in such a miserable state as it is, is evidence enough of ongoing failure. If GM actually made great cars, cars people wanted to buy, instead of settling for because of insane discounting, this website wouldn't be called the truth about cars. It'd be called the truth about GM, and there would be just one post that read "Well, what are you waiting for? Go buy one!"
May I be blunt? Many of the comments posted to “General Motors Death Watch 85: The Calm Before the Storm” are off subject. The editorial was written about the fall of General Motors, not the purchase of a Lexus, the illegal use of hand-held cell phones, or various other topics. Responses such as these are symbolic of the fall of GM – a lot of good discussion but a total lack of focus to the subject at hand. Maybe the people at The General aren’t the only ones headed for the skids.
To: Airglow – Re: your quote "To all of you GM haters/bashers who have posted replies, have any of you actually driven a GM vehicle lately? I have, and almost all of their direct competitors courtesy of Hertz, National, etc. … The Impala is so much larger that those two, drives just fine, and is thousands less equivalently equipped." Your quote points out the exact problem with GM and other Detroit automobiles; that they are fleet/rental vehicles that are 1. big, 2. OK (subjective), and 3. cheap. I am guessing that your experience with Camrys and Sonatas are not via rental, correct? If so I would love to know which chain rents them so I don't have to drive a GM next time I have to travel. Your analogy of Foreign v. GM = Microsoft v. Apple is inapplicable in so many aspects. Apple purports to be an innovator selling something different for a higher price. GM has not innovated since about 1990, maybe earlier, and is selling most of its products at a lower price. Except for the Corvette, GM has no unique products. Even the Solstice / Sky convertibles, while styled very attractively, is just a me-too after the roadster revival led by the Miata. You may think the rest of us are in some sort of conspiracy against GM, but supply and demand don't lie. The fact is, consumers are voting with their $$$, and GM is losing market share. P.S. The latest Macs are using Intel chips, and Boot Camp allows these Macs to run PC OS, drivers and software natively.
It could be alot worse, David. Mr. Farago has yet to recieve the pleasure of watching his comments database ballon as someone's bot network broadcasts 10,000,000 consecutive games of tic-tac-toe in ASCII to the site. A few off topic paragraphs with his number of reader ship ain't bad.
Yes, GM's second quarter numbers were a prime example of lying with statistics. However, stocks move on incremental news, and the incremental news appeared to be good. I say "appeared", because you did a better job of breaking apart where the earnings came from than most on Wall Street. This is because the best Wall Street auto analysts have either retired (e.g., Maryann Keller, Ann Knight, John Casesa) or moved on to hedge funds (like Nick Lobaccaro or me, for that matter), now that their pay isn't being subsidized by investment banking. The youngsters haven't heard this song before. The old timers have.
Robert- GM is not going under, period. Here's a question- how many Dow Jones blue chip companies have gone under recently? None that I know of. Maybe you need to take a basic economics course so you can understand the sheer size and staying power of a major international player like GM. Again, GM is not comparable to MUCH smaller CAR companies like Rover, they are much more diversified. by montess
Dr. JP Have you thought about cross-shopping a Saab 9-3? Particulary the SportCombi model – 210 hp, lots of turbo torque, less than $30k? Much more fun to drive than a Camry/Altima/Accord.
Farago's last comments about the junk credit buying of gm is on target. Years ago, in the car business, good credit risks got the low and 0% rates. A second tier of lenders was available to the bad credit business, they were called the "rat banks". These finance companies charged State maximum interest rates (many times 18-22%) to finance used cars for "rats". GMAC in the old days would never touch a rat, or sell him a new car. (Besides low credit scores, rats have a propensity for reposesions. Repos are the kiss of death, because usually all or most of the loan is lost) If Gm and I don't know this personally gave new cars (10,-20,000) in value to rats, they will certainly reap the rewards from the first few months they put these cars out. This would be far worse than the cheap leases of the 90's which didn't see the losses for 24 or 36 months when the residuals (remaining value) of these cars was far less than the stated value on the lease. Yes, the big three did this and lost millions, and this goes to the essense of what another blogger wrote, what is the difference if American cars don't have good resale value? It is an error to believe that what you save on a super discount will offset poor resale value. Not only will the foreign buyer win here, at trade in time he will be far ahead even if he got a small discount up front. Try and sell a used chevy toa college student, then have a toyota or honda for such a sale. The valuation books don't lie and they don't have opionions just facts.
Yes, Farago's comments are still correct. If you lower your lending beacon scores and allow buyers with previous repossesions to purchase new cars you are asking for defaults within the first months of purchase. I don't know how much gm did of this, but we all will know if they take huge chargebacks next year on loans. This will have to be verified. What is even more damning is that GM can still not sell it's cars straight like Toyota and Honda. Take the fire sale deal away and the cars back up on the dealers lots. (ford and chrysler are in this too). In the 90's the big three used cheap leases, and within 24 to 36 months when the cars came off lease, the losses due to a residual that was thousands too high, were staggering. It seems that you can't get around one fatal flaw with gm, corvette an exception, no gm car can hold any decent resale value from year one to twenty. For the critics of Farago, do the taste test at home (anywhere you live in America is fine) put a used gm car in the local paper, then put a used honda or toyota of the same comparable model and vintage. Not only will the foreign car sell quickly, it will be for a much greater price.I don't care what your other blogger says, you can't make up the discount gm gives at resale time. (remeber the competition gives some discounts . If this could ever be changed gm and other American cars will have a future.
GM may be bigger and more diversified, but they can still go under in a heartbeat. If they make a product that does not sell for a profit, then the income is not there to remain in business. It's as simple as that. And with their current product line, there is no way to sell these vehicles for a profit. GM vehicles sell on lowest price and that's the bottom line. I have driven GM vehicles recently and there is no way in hell I would ever buy one. If I am spending time in a car it has to be at least a fairly pleasant place to be. GM's low buck interiors are more prison than posh. It is not a place I want to spend more than 30 seconds. And they will set some records when they finally do file for bankruptcy. Without the federal government stepping in, it will be the largest bankruptcy filing in history.
Apparently the folks complaining about the deathwatch series don't realize that they only started late last year. While many of the editorials could be combined as they reiterate the same message again and again, the editorial series itself is relatively young. Both Wallstreet and business rags like Fortune and Business Week are calling it like they see it with GM, and they are painting a similarly gloomy picture. In my opinion, GM's bankruptcy would not adversely a majority of the US regional economies. Stop kidding yourselves, GM is not that important, they are not a GE. GM would continue to exist as a corporate entity and their plants would continue to operate under Chapter 11. There would be massive layoffs of overpaid union workers and corporate executives, but it would only impact the local economies. montess, I don't believe that Robert is saying that GM would disappear, but that it would most certainly go into bankruptcy (you need to read the series from the beginning). Oh, and here are two blue chip companies that recently went under: Enron and Worldcom.
montess, AT&T is a prime example of a Blue Chip Stock that went under until it was saved by SBC and kept the brabnd name, not the company. Of course it was not Blue Chip when it was removed from thr Dow in 2004. You said “Maybe you (Robert)?need to take a basic economics course so you can understand the?sheer size and staying power of a major international player like GM.” You said to:??Glenn- What are you smoking? It must be really good. You?re comparing General Motors to MG-Rover? While you?re at it, why don?t you just say that The US economy and Great Britain?s are comparable. C?mon if you?re going to make a statement, at least compare apples to apples. Economics, Apples to Apples? Please, don’t embarass yourself. Like I said before GM should trade the Bob Seger song “Like A Rock” to Bob Seger song “Ship of Fools.” Oh yeah, Bob is from Michigan too. Read “End of the Line ” The Rise and Fall of AT&T” by Leslie Cauley. DO not be fooled, Ma Bell Died, what you have now is “Fake AT&T” and the so-called merger with BellSouth it will then be called “BS AT&T. http://qualityg.blogspot.com/2006/07/quality-leadership-update-72606-bs-att.html More proof come to Detroit, I’ll be glad to drop you off downtown at the RenCen Building so you can see for yourself. Greg
Glenn: I really don't believe that GM is putting everything into hock, as you say. I think the ending of cooperation with Subaru, was due to the fact there was little they could really share, other than the WRX. Isuzu, is on the ropes, at least in the US. Not one of the models they offer here are Japanese. Although, it seems at least for the time being, they don't mind being a customer of GM. The Suzuki's we see in the US are not even Japanese, they were designed (largely) by Daewoo of Korea. GM's acquisition of Daewoo is a stellar move. The Koreans have proven to be master cheap car builders, something that will serve GM well over the next several years. Saab is their new technology developer, for example, they developed the Ecotec engine. The Trollhattan Saab website outlines their efforts, it's been a very interesting read lately. How long ago did the General (Roger Penske) buy Detroit Diesel from GM? That's been a while now. They seemed to have survived the sale of that division pretty well. In the aggregate it looks like they're focusing their more narrowly on their own product lines instead of entangling themselves in other car companies business. GM globally has the resources to do whatever they need to get done on their own. That's why the proposed alliance with Nissan-Renault was so roundly criticized, IMO. That said, I would like to see more Opels over here (yes I know the new Saturns are just that), maybe a Chinese Buick, too. Not for the price, but the design. Their version of the LaCrosse is beautiful, much better looking than our domestic one, again IMO. The SUV's remain an albatross, but I believe the pickup trucks will regain sales again. Maybe not to the levels that we saw with cheap gas, but those are needed by folks who work for a living. I would like to believe 'the smaller the woman, the bigger the SUV' days are over. But we seemed to have absorbed these higher gas prices already (with the exception of the car dealers) according to the government. If they don't go up for an extended period of time, this will become the new normal, and we may fall back to our excessive ways again. Again, I'm not trying to paint a rosy picture. The Chevy dealer where we bought our Malibu Maxx had a ton of SUV's on the lot. But, I'm willing to see what's around the next corner.
I too think GM will probably survive but not as a major force in the industry. They can't say it but I think that GM management knows that they are destined to be a much smaller company. It just can't happen all at once. They can't spin-off non-auto holdings, downsize their workforce, shutter excess manufacturing facilities, close unnecessary divisions and get rid of 50% of their dealership network overnight. Doing so would panic shareholders, employees, current and future customers, suppliers and much of th public. What we are watching is a juggling, three card monte, plate spinning act by GM management designed to give them time to go bankrupt without going bankrupt. There will eventually be parity in the world auto industry and GM will survive a just another car company.
Montess—- Woolworth was dropped from the Dow and Declared Bankruptcy in the same year- i believe 1997 – there's your precedent- <it’s worth more than the GNP of any third world nation and more than some developed nations-> what economics school did you graduate from? GNP is top line, and Gm is'nt worth Much(16 bil) — so what DEVELOPED nation has a GNP of only 16 billion?? the number's you need rely on are simple- $17eps,$20 divdends , $100 cap-ex
GM and Osama Bin Laden… They're both in bad shape, but may or may not die soon. As juicy as the news posted in Mr. Farago's deathwatch articles is, the info is one sided. Everyone out there and here at TTAC knows that GM is in bad shape. The question is whether or not the situation is terminal. As bad as GM's situation is, they actually do have some things going for them (and I'm not talking about the GM-Nissan thing). So who's gonna kick it first? GM or Osama? I'm gonna bet…errr…"subscribe" to TTAC according to the following: $150 if GM goes bankrupt before Osama is captured/killed or if GM goes bankrupt within 18 mos. The check isn't in the mail… =)
Jerry …GM was giving loans to RATS as you call them during the 72 hour sale and lots of them.The majority of people out there vehicle shopping right now seem to be mostly marginal to very bad.I think thats because we put so many people in cars in the last couple of years that they arent ready or cant trade in 1 or 2 year old vehicles .GMAC has tightened up a little on buying since the sale is over but they have to deal with whats coming in so they are still doing less than perfect loans.I guess a bright spot is cars are selling better but theres very little profit there.